Beneish M-score
The Beneish M-score is a simple tool that uses eight financial ratios from a company’s accounting data to flag when earnings might be manipulated.
Eight indicators the model looks at (in plain language):
- DSRI: Receivables-to-sales ratio compared with last year. A big jump can signal earnings manipulation.
- GMI: Gross margin index. How gross margin has changed from last year to this year.
- AQI: Asset quality index. Changes in the mix of assets (like more non-core or hard-to-value assets) that could hide true earnings.
- SGI: Sales growth index. How fast sales are growing this year vs last year.
- DEPI: Depreciation index. Changes in depreciation relative to the asset base.
- SGAI: SG&A expenses index. How selling, general, and administrative expenses relate to sales this year vs last year.
- LVGI: Leverage index. Changes in debt relative to assets.
- TATA: Total accruals to assets. Difference between what earnings show and cash from operations, scaled by assets.
How the score works
- The model combines these eight indicators into a single M-score.
- A common threshold is -1.78: if the M-score is higher than -1.78, earnings manipulation is more likely; if it’s -1.78 or lower, manipulation is less likely.
A few notes and examples
- Enron: In 1998, a version of the M-score correctly flagged Enron as manipulating earnings, though many Wall Street analysts were still recommending the stock at the time.
- Research uses: A 2023 study used aggregated scores from many companies to help predict recessions, finding high scores in early 2023.
In short, the Beneish M-score is a quick way to gauge whether a company’s earnings might be misleading, based on patterns in its accounting data.
This page was last edited on 3 February 2026, at 18:17 (CET).